Stock market newbie Spotify hits targets, plays down challenges

LONDON (Reuters) - Market leading music streamer Spotify added 10 percent more paid subscribers in the second quarter and said it was on track to meet its full-year targets as it downplayed reports it was losing ground to rival Apple Music in the United Sates.

FILE PHOTO: The Spotify logo is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 3, 2018. REUTERS/Brendan McDermid/File Photo

Despite some mixed results in its report and financial outlook, its shares touched new highs early Thursday near $199 - up 20 percent from its first day of trading in April - before settling back to $191.10, up 1.6 percent, at 1436 GMT/1036 ET.

In the Swedish company’s second financial report since its debut on the New York Stock Exchange, Spotify said monthly paying subscribers, which generate the bulk of its revenue, rose to 83 million at the end of June from 75 million in March.

The figure topped the 82 million average estimate in a Reuters poll of analysts and was more than double that of the 40 million paid users which Apple, its closest rival in the music streaming business, last disclosed in April.

Spotify, which launched its service a decade ago, has seen a surge in subscriber growth in recent years as the previously skeptical music industry warmed to streaming as a surer way to return to health after struggling to adapt to the digital age.

The Stockholm-based company tightened its full-year forecast for total monthly active users - including those choosing the entry-level, ad-supported service - to between 199 million and 207 million.

The still loss-making company is under increasing pressure, however, from Apple, which has the advantage of a huge customer base, especially in the lucrative U.S. market. Apple will report second-quarter results next week.

Spotify co-founder and Chief Executive Daniel Ek said the company continues to enjoy rising growth in paid and free users in the United States, while providing no specific figures.

He said customer churn, or service cancellations, fell below 4 percent in the United States, which contributes 31 percent of the company’s worldwide revenue. The churn rate worldwide was 5.1 percent at the end of 2017.

The company said it was seeing lower churn thanks to growth in family usage and student packages and bundling of Spotify with the video streaming service Hulu.

PRIVACY SHOWDOWN

Premium subscription revenue topped expectations, rising 27 percent to 1.15 billion euros ($1.34 billion) while revenue from its ad-supported service was weaker at 123 million euros, well below the 138 million, on average, analysts had forecast in a Reuters poll.

Overall, revenue rose 26 percent to 1.27 billion euros. But its growth was slowed by new European data privacy rules that took effect in May, which gives users more control of how their personal information is used by marketers and others.

“We did see some GDPR disruption across our European markets during Q2 but seem to be largely past that now,” the company said in a statement, referring to the European Union’s General Data Protection Regulation that came into effect in May.

Chief Financial Officer Barry McCarthy said Spotify endured a “short-term hiccup” - around two weeks, late in the second quarter - during which it came under pressure from advertising firms to divulge more data about its users.

“When it became clear that we weren’t going to soften our position, we were able to move on and get back to the business of booking revenue,” McCarthy told reporters of the company’s behind-the-scenes skirmish over user data privacy.

The company said its operating loss widened to 90 million euros from 41 million in the first quarter, largely due to costs related to its stock-market listing. Management reiterated its focus on rapid growth in global market share and entry into emerging markets rather than on short-term profitability.

Spotify’s CEO denied recent reports his company was seeking to replace major music labels by licensing music directly from artists, saying it has done this for years and its goal remains to act as a promotional platform for both artists and labels.

“We will continue licensing music from whoever owns the rights,” Ek told investors on another conference call. “We have been doing this for years because our goal is to get as much music on to the platform as we possibly can.”

Spotify’s $26 billion stock market debut in April was the most highly scrutinized technology IPO since that of Snapchat owner Snap last year.

It is the first European company to take on major U.S. tech rivals - Apple, Amazon and Google - on the global stage. Its unorthodox direct market listing, bypassing investment banks, also made for rocky trading in its first few weeks.

Reporting by Eric Auchard in London; editing by Jon Boyle and Elaine Hardcastle